United States
The greenback staged a meaningful recovery in late turnover ahead of the weekend and has extended those gains during today’s holiday-thinned trading environment. The broad dollar index reflects renewed strength as risk sentiment shifts and safe-haven flows reassert themselves. With Japan, China, and UK markets closed, liquidity remains constrained, but the dollar’s directional bias has clearly turned positive.
Geopolitical developments have added a layer of volatility to currency and commodity markets. The ceasefire in the US-Iran conflict appears fragile, with Washington announcing plans to begin escorting ships through the Strait of Hormuz while Tehran has threatened retaliatory strikes. This escalating tension has provided support to risk-off positioning and bolstered the appeal of the greenback as a flight-to-safety currency.
On the policy front, Washington announced two significant measures at the end of last week that carry both economic and strategic implications. The administration raised tariffs on European vehicles from 15% to 25%, citing Europe’s failure to fully implement the bilateral trade agreement requiring the purchase of $750 billion in US energy. Simultaneously, the US announced intentions to withdraw at least 5,000 troops from Germany. While the troop reduction technically unwinds the deployment increase that followed Russia’s 2022 invasion of Ukraine, the timing and context of the announcement—appearing to follow Chancellor Merz’s criticism of US military action in Iran—has given markets pause regarding the stability of transatlantic security arrangements.
Domestically, the economic calendar remains light today, with March factory orders data due. However, last week’s robust durable goods orders, which will see an update today, point to resilient capital expenditure likely driven by artificial intelligence infrastructure and data center investments. The replenishment of the US arsenal has yet to fully materialize in the hard data, though defense spending remains a forward-looking tailwind.
On the Fed speakers’ circuit, New York Federal Reserve President William is scheduled to speak—the first official commentary since last week’s monetary policy meeting. Cleveland Federal Reserve President Hammack, who dissented at the recent meeting and favored maintaining a neutral policy statement, is set to speak on Thursday and may command particular attention from market participants seeking clues about potential future policy shifts.
The 10-year US Treasury yield has jumped sharply, rising nearly four basis points to almost 4.41%. Last week’s peak was marginally higher, while the year-to-date high remains near 4.48%, recorded in late March. The 30-year yield briefly poked above 5% last Thursday for the first time since July of last year, and the market structure suggests the selloff may not be exhausted. Geopolitical risk premiums and inflation concerns appear to be reasserting themselves in the long end of the curve.
Eurozone
The euro posted what appeared to be a bullish outside-up day last Thursday, with follow-through buying ahead of the weekend carrying the currency to $1.1785, marking an eight-day high. However, upside momentum stalled as price approached the resistance zone between $1.1790 and $1.1800. The announcement of the 25% tariff increase on European vehicles—up from 15%—and the troop withdrawal from Germany triggered a sharp reversal lower. The euro pulled back to new session lows near $1.1715 in the waning hours of thin Friday trading before slipping slightly through $1.1690 in today’s holiday-thinned dealings. A sustained move back below $1.1700 would disappoint bulls and potentially signal a test of lower support levels. Options totaling approximately 925 million euros at the $1.1700 strike expire today, creating a potential technical pivot point.
The eurozone manufacturing sector continues to show resilience. April’s final manufacturing PMI was confirmed at 52.2, standing near a four-year high and signaling continued expansion. However, regional divergence remains notable. Spain’s March manufacturing PMI failed to break above the 50 boom-bust threshold, yet the country’s first-quarter GDP growth of 0.6%, reported last week, exceeded expectations and outpaced Germany (0.3%), France (flat), and Italy (0.2%). Spain’s manufacturing sector rebounded sharply in April, with the PMI jumping to 51.7 from 48.7. Italy’s April manufacturing PMI proved strongest among the “Big 4” eurozone economies, standing at 52.1 compared to 51.3 in March.
The European Central Bank’s policy trajectory remains a key driver for EUR/USD dynamics. With tariff uncertainty now elevated and growth differentials across the bloc becoming more pronounced, ECB speakers and forward guidance will carry heightened significance for currency positioning. The tariff escalation introduces a new risk variable that could dampen eurozone growth expectations and potentially influence future monetary policy decisions.
United Kingdom
Sterling reached almost $1.3660 before the weekend, marking its highest level since February 16. However, the currency reversed sharply lower and settled below the $1.3600 psychological level, a key nemesis for cable. In the waning hours of Friday’s session, sterling fell to almost $1.3570, weakening the technical picture. Follow-through selling today has pushed cable slightly below $1.3525. A convincing break of $1.3530 could trigger a retest of the $1.3450 area, representing a significant support level that could be challenged if selling accelerates.
The Bank of England’s policy stance and UK economic data remain crucial for cable direction. With markets pricing in potential rate cuts, any deterioration in UK growth data or signs of persistent inflation could alter the BOE’s forward guidance. The current weakness in sterling suggests some repositioning toward lower levels, though support structures remain in place to prevent a disorderly decline.
China
China’s mainland markets remain closed and will not reopen until Wednesday. The offshore yuan is trading within its recent established ranges against the greenback. The dollar found support today near CNH6.8155, while April’s low was recorded near the middle of the month around CNH6.8060. The greenback has recovered to around CNH6.8250, suggesting modest consolidation within the recent trading band.
With markets closed, positioning likely remains cautious as traders await the reopening and any potential policy guidance from Chinese authorities. The PBOC’s recent fixing and any signaling regarding monetary policy will be critical for yuan direction once trading resumes. The relatively stable offshore yuan positioning reflects the absence of fresh catalysts during the holiday period.
Japan
The yen staged a remarkable rally, reaching its best level since the Middle East conflict commenced, with what appears to be material official intervention supporting the currency. The dollar recorded a low of JPY155.50 before the weekend, a level corresponding to a significant technical retracement of the dollar’s advance from the January low. Tokyo markets remain closed and will not reopen until Thursday, limiting trading activity and price discovery in yen pairs.
The dollar is consolidating in today’s thin dealings, holding above JPY155.70 while remaining confined below JPY157.25—essentially maintaining the pre-weekend range. Japanese officials have managed to arrest the yen’s previous slide without explicitly signaling a policy shift or securing US support for coordinated intervention, effectively reinforcing the importance of the JPY160 area as a key policy level. Previous support around JPY157.50 to JPY158.25 may now function as resistance if the dollar attempts to recover higher.
The Bank of Japan’s policy stance remains accommodative, though recent yen strength has attracted attention from policymakers concerned about currency volatility’s impact on exporters and inflation dynamics. When Tokyo markets reopen on Thursday, traders will scrutinize any commentary from BOJ officials regarding intervention tolerance and the central bank’s assessment of current yen levels. Tokyo CPI data and other Japanese economic indicators will provide context for future BOJ decisions, though the most immediate focus remains on whether the recent yen strength persists or reverses once normal trading volume returns.
Canada
The Canadian dollar reached its best level since March 10 before the weekend, with the greenback settling near CAD1.3640 at the onset of the Iran tensions. By the end of last week, the loonie had strengthened to CAD1.3550, representing meaningful appreciation. The US dollar briefly took out the trendline connecting the January and March lows (approximately CAD1.3580) but ultimately settled above it, suggesting the trendline retained some significance as support.
Today, the greenback has approached CAD1.3620 in thin trading conditions. Options totaling $380 million at the CAD1.3615 strike expire today, creating a potential technical flashpoint. The previous band of support extending to CAD1.3620 may now offer resistance if the loonie attempts to weaken further.
The Bank of Canada’s monetary policy trajectory and Canadian economic data remain critical drivers for USD/CAD direction. Recent GDP figures and labor market developments will influence BOC guidance and, by extension, the relative attractiveness of Canadian assets. Geopolitical risk premiums and commodity price movements, particularly oil prices, also significantly impact the loonie given Canada’s role as a major energy exporter.
Australia
The Australian dollar reached almost $0.7230 before the weekend, marking its highest level since June 2022. The Reserve Bank of Australia is widely expected to deliver its third rate hike of the year at tomorrow’s meeting, a development that has supported the aussie’s recent strength. Currently, the currency is consolidating between approximately $0.7165 and $0.7225.
The technical setup suggests the Australian dollar may be vulnerable to “buy the rumor, sell the fact” dynamics. If the RBA delivers the anticipated rate hike without surprising markets with hawkish forward guidance or additional tightening signals, profit-taking could emerge from long positions. Traders should monitor the central bank’s statement carefully for any hints regarding the terminal rate and the pace of future policy adjustments. Australian economic data, particularly inflation metrics and employment figures, will provide context for the RBA’s assessment of the inflation outlook and labor market dynamics, both critical variables for policy decisions beyond tomorrow’s meeting.
Emerging Markets
The Mexican peso rose modestly at the end of last week, posting the best performance among Latin American currencies on Friday despite being essentially flat. However, the peso finished the week with a modest loss of approximately 0.45%, marking the third consecutive week of depreciation. Trading has turned softer today, with the dollar reaching MXN17.5525 in European turnover compared to last week’s high near MXN17.5840.
Mexico is expected to announce new investment-boosting measures today focused on cutting red tape and reducing regulatory friction. This announcement follows last week’s report of the country’s largest quarterly economic contraction in a year, with GDP declining 0.8% quarter-over-quarter. The combination of weak growth and policy responses will likely influence peso dynamics going forward. The highlight of the week for Mexico arrives Thursday with April CPI figures followed by the central bank’s rate decision several hours later. These data points will be critical for assessing inflation trends and potential adjustments to monetary policy.
The Brazilian real gained approximately 0.5%, showing resilience amid broader emerging market volatility. In contrast, the Colombian peso emerged as the weakest emerging market currency last week, declining roughly 2.25%. The currency was punished following the central bank’s decision to hold its policy rate at 11.25%, disappointing market expectations of potential rate increases as large as 75 basis points. The national election scheduled for late May may continue to exert pressure on the peso as political uncertainty persists.
The Indian rupee remains decidedly out of favor, having reached a record low last Thursday before Friday’s holiday closure. The pullback in oil prices may offer some support to the rupee going forward, as lower energy costs improve India’s current account dynamics. With the help of apparent official intervention, the rupee recovered last Thursday after the dollar reached INR95.3335. The currency fell to INR94.82 today before rebounding back above INR95.0880 toward session highs in late turnover, reflecting continued volatility and intervention attempts to stabilize the currency.
Global Markets
Equity markets are displaying mixed performance across regions. China and Japanese markets were closed during the holiday period, but most other major indices rallied today as risk sentiment improved modestly. Taiwan and South Korea’s main indices surged 4.6% to 5.1% respectively, reflecting strong performance in Asia ex-Japan. European turnover remains thinned by the holiday, with the Stoxx 600 trading slightly softer as volume constraints limit meaningful price discovery. US Nasdaq and S&P 500 futures are trading with a firmer bias, suggesting potential strength at the US open, though the thin trading environment warrants caution regarding the sustainability of these moves.
Benchmark 10-year government yields are jumping 4 to 6 basis points across European sovereigns, reflecting a broad-based selloff in long-duration bonds. The 10-year US Treasury yield has risen nearly four basis points to almost 4.41%. Last week’s peak was marginally higher at a couple of basis points above current levels, while the year-to-date high remains near 4.48%, recorded in late March. The 30-year yield briefly poked above 5% last Thursday for the first time since July of last year. The market structure suggests the selloff is not exhausted, with geopolitical risk premiums and inflation concerns reasserting themselves across the curve.
Gold reached a three-day high before the weekend near $4,660 but has approached last week’s low of approximately $4,510 today, which also coincided with April’s low. A decisive break of $4,495 could signal losses toward $4,400, representing a significant technical support level. Silver has been sold through the pre-weekend low near $73 before finding support ahead of last week’s low near $72. Both precious metals are experiencing pressure as risk sentiment improves and real yields rise, though geopolitical uncertainty continues to provide some bid.
Crude oil has experienced notable volatility tied directly to Middle East developments. June WTI briefly traded below $100 on news that the US would begin escorting ships out of the Strait of Hormuz, suggesting reduced supply risk. However, Iran has not capitulated to these measures and has threatened retaliatory action. The contract recovered to new session highs near $107.45 in late European morning trading, reflecting the re-emergence of supply concerns. The current price action suggests markets are pricing in elevated geopolitical risk premiums, with the potential for further volatility if tensions escalate or de-escalate sharply. Brent crude has similarly benefited from the risk premium, trading in line with WTI on a relative basis.
